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(Cournot Duopoly Revisited) Consider the Cournot duopoly model where the (inverse) demand is P (Q) = a Q. The two firms now have asymmetric marginal costs: c1 for firm 1 and c2 for firm 2.
(a) What is the Nash equilibrium if 0
(b) What is the Nash equilibrium if 0 a + c1?
Based on predatory pricing theory, the predatory company sets price below marginal cost, the relevant cost of production. Competitors must then lower their prices below marginal cost,
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